FAQ: Paycheck Protection Program (PPP) Loans for Small Businesses

paycheck protection program PPP

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Are you located in the United States? Do you own a small business or are you self-employed, a freelancer, or independent contractor? If so, pay close attention to the Paycheck Protection Program (PPP).

Think of it as a unique small business forgivable loan program. It provides valuable relief during the coronavirus situation. It provides a stopgap for your small business until you resume normal operations and normal cash flow.

The Paycheck Protection Program makes up part of the Coronavirus Aid, Relief and Economic Security (CARES) Act. President Trump signed it into law on March 27, 2020. The US Senate Committee for Small Business and Entrepreneurship developed the PPP and funded it with $349 billion.

Different programs exist for different persons under the CARES Act. The PPP exists exclusive for small businesses.

The PPP provides low interest loans. It covers up to 10 weeks of payroll expenses. Make loans through participating banks and later get 100% forgiveness. And turn the money into non-taxable grants.

The program passed in record time. And the government implemented it in one week! It differs considerably from a typical SBA loan program. The government radically accelerated it to get money in the hands of small businesses quickly. As a result, the program also requires a minimum of paperwork.

Check out the most frequently asked questions about the Paycheck Protection Program from small business owners below.

How Does the PPP Work?

As stated, the PPP is a loan program. However, the loan is designed to be forgiven — provided you meet the conditions.

Forgiven means that you as a business owner will NOT have to repay the loan if you follow the rules and meet the requirements. So, in this respect, it becomes a non-repayable grant.

No personal guarantee is required. You do not have to put up collateral, either.

Small business owners and entrepreneurs who want to participate must first apply with a lender using a simple form supplied by the Small Business Administration.

The loan is 100% backed by the Federal government, but owners can only get funds by dealing with a lender (bank, credit union, etc.).

The lender takes the application form, processes it and submits it to the SBA on the business owner’s behalf. The business owner gets the funds quickly.

Who Can Apply?

The PPP is for U.S. small business owners and entrepreneurs, only. It provides relief for:

  1. U.S. business owners of any business with 500 or fewer employees.  The application period for business owners with employees opened on April 3, 2020.
  2. Self-employed entrepreneurs, freelancers or independent contractors in the U.S. If you are self-employed and have no employees, you fall under this second part of the program. The application period for self-employed entrepreneurs who have no employees, is expected to open up on April 10, 2020.

There are some other conditions that apply in special circumstances. For example, you will not get a PPP loan if you are delinquent on an existing SBA loan or defaulted in the past.

You must have been in operation on February 15, 2020. Businesses can only get one PPP loan.

You must certify that “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

When Can I Apply?

Small businesses owners with employees can apply now, through June 30, 2020.

Entrepreneurs without employees can apply for the Paycheck Protection Program starting April 10, 2020, through June 20, 2020.

Loans are first come, first served.

  • There is a funding cap of $349 billion and that pool of money may run dry.
  • Unless Congress decides to add more money, allocated funds are currently projected to run out in May according to Florida Senator Marco Rubio.

How Much Can I Get from the Paycheck Protection Program?

Small business owners may get a maximum of 2.5 times the business’s average monthly payroll costs.

  • Most small businesses: You will use your average payroll costs for 2019.
  • Seasonal businesses: If your small business is seasonal, the amount is based on your monthly average over a 12-week period.
  • New businesses: If your business is new, you can figure average payroll based on January and February of 2020.

The absolute maximum loan amount for any business is $10 million.

What Counts as Payroll Costs?

When calculating “average payroll costs” to determine your eligible loan amount:

  • Employees must be U.S. residents.
  • Include salary, commissions, tips, benefits such as insurance and paid leave, and  state and local taxes when calculating payroll costs.
  • For employees who earn over $100,000, you must cap their compensation at $100K when calculating average payroll.
  • If you just laid someone off, you can rehire them. You have until 30 days after the CARES Act was enacted (on March 27) to bring them back.
  • You may not count payments you make to independent contractors in calculating payroll costs. The Final Rule states …”independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.”  However, the rule is unclear on this point and we are expecting clarification.
  • See the application form for more information on how to calculate average monthly payroll costs.

As a Solo Entrepreneur, How Much Can I Get from the Paycheck Protection Program?

Self-employed individuals who have no employees are eligible for up to 2.5 times your average monthly income. This includes freelancers and those who work as independent contractors.

In the Paycheck Protection Program, a sole proprietor or independent contractor will be asked to provide documentation about the sum of payments he or she has received in the prior year. The payments will include wages, commissions, income, net earnings from self-employment or similar compensation.

The total amount, which must not be more than $100,000 in one year, will be prorated for the covered period.

What Can I Use the Money For?

Business owners with employees must use the funds for payroll. At least 75% must go to this.

Use the remainder for rent, utilities, and interest on debt.

What Will the #PPP Cost Me?

The business owner is charged no fees. All loan application and processing fees are paid by the U.S. government directly to the lenders.

If the loan is not forgiven, you have to repay the loan within 2 years, at 1% interest.

No payments are required for the first 6 months.

Where and How Do I Apply for PPP Loans?

Contact an FDIC-insured bank or credit union. You will have to complete the SBA application form.

But you must go through a private lender. Then the lender submits the application to the U.S. Small Business Administration. The lender gets reimbursed by the government.

Online lenders such as PayPal are in the process of being approved to offer PPP loans, also. That approval is expected soon.

This program was put together in one week (which is amazing). So the SBA and banks are scrambling. Expect some lenders to be unclear and figuring this out on the fly.

NOTE:  Get help completing the application before going to the lender at CorpNet.com.

How Do I Qualify for Paycheck Protection Program Loan Forgiveness?

The #PPP technically qualifies as a loan. As a result, you need to meet certain conditions in order to get it “forgiven”:

  • You must spend the money within 8 weeks after getting the loan. Spend at least 75% for payroll. And spend no more than 25% on utilities, rent and interest. You must spend the money for existing rent and interest commitments. As a result, you cannot go out and get a new office.
  • You must realize other conditions exist on use of the loan for payroll. For example, if you subsequently reduce pay or headcount, expect forgiveness to be reduced.

We don’t yet know exactly HOW you go about getting the loan forgiven.

Keep good records. Document everything thoroughly. For example, you need the number of full-time employees and their pay rates. You also need records of state income, payroll and unemployment insurance filings.

For rent, utilities and mortgage expenses, you need copies of cancelled checks, receipts and bank account statements.

Get all the supporting documents to the lender. After that, the lender must review your records. They get no more than 60 days to make a decision.


Clarifications and updates come out daily, almost hourly. As a result, ask your lender for more details. We update these FAQs as new information becomes available.

Image: Whitehouse.gov

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Lisa Price Lisa Price is a freelance writer living in Barnesville, Pennsylvania. She has a B.A. in English with a minor in journalism from Shippensburg State College (Pennsylvania). She has worked as a trucking company dock supervisor, newspaper circulation district manager, radio station commercial writer, assistant manager of a veterinary pharmaceutical warehouse and newspaper reporter.

9 Reactions
  1. Thanks for answering all the tough questions. It is nice to have all the answers in one place.

  2. What are self employed persons (with no employees) required to spend the loan money on in order to qualify for forgiveness – since we have no one on payroll? Thanks for great info!

  3. Just did all the paperwork for this program (again). Got off the phone with my bank after supplying a pile of paperwork in addition to PPP. Their answer was a small percentage of the needed revenue would be available and since I have been shutdown by the government, It would be a loan that I would have to payback after all this mess is over. I am a startup. I can’t afford another loan.
    My landlord wants his rent….
    I was going to bring back my full timer to get her back on payroll and off unemployment. This is a mess.

  4. We opened a restaurant in June 2019 and our first payroll was run on 1st July 2019.
    Are we considered a new business?

    Should we consider the average payroll costs for 2019 (total payroll costs divided by 6)?
    Or should we consider the payroll costs for Jan and Feb?

    • You are certainly eligible to apply for a Paycheck Protection loan. You should also file a claim for losses with your premises liability or business insurance carrier. don’t be deterred if the carrier denies your claim. Law firms like mine are pursuing these claims on behalf of businesses.

  5. I applied and recieved a PPP loan. Some of my employees went on unemployment before I knew I got the loan. Somehow, the amounts they are getting from unemployment are higher than what they were earning in paychecks from me. My question is do I have to pay all my employess with PPP money? If they do not want me to pay them, and prefer to be paid by unemploymnet insurance, do I have to pay them? As long as you use the money as dictated by PPP you should qualify for forgiveness. But does that mean you have to pay each employee who was previously on payroll, especially if they do not want you to pay them.

  6. If I have ITIN number but I run a large business with more than 30 employees in the construction industry, Can I still qualify for PPP?
    My husband has SSN and also is the owner of the business but we are not US Citizens nor have yet Permanent Resident Card.

  7. My business started Jan 1 2020. I’ve not pd myself. Now what

  8. I received the PPP money on April 26, 2020 and as of 5/20/20 I have not been approved to open per the Governor of our state and it doesn’t appear that we will open until June 5-15. If the funds are only good for 8 weeks I don’t see that I will be able to use the funds. How is this supposed to help businesses if they don’t update the terms?

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